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Real earnings management and financial statement fraud: evidence from Malaysia

Author

Listed:
  • Noorul Azwin binti Md Nasir
  • Muhammad Jahangir Ali
  • Rushdi M.R. Razzaque
  • Kamran Ahmed

Abstract

Purpose - We examine whether the fraud firms are engaged in real earnings management and accrual earnings management prior to the fraud year in the Malaysian context. Design/methodology/approach - Our sample comprises of 65 financial statement fraud and 65 non-fraud firms over a period of eight years from 2001 to 2008. Findings - Using the abnormal cash flow from operations (CFO) and abnormal production costs as the proxies for real earnings management, we find that financial statement fraud firms engage in manipulating production costs during preceding two years of the fraud event. However, our results show that financial fraud firms engage in manipulating CFO prior to the fraud event. Additionally, we find that financial statement fraud firms prefer to manipulate earnings using accruals relative to real earnings prior to the fraud year. Originality/value - Our results demonstrate that real earnings management is more aggressive in financial statement fraud firms compared to the non-fraud firms in the four years prior to fraud.

Suggested Citation

  • Noorul Azwin binti Md Nasir & Muhammad Jahangir Ali & Rushdi M.R. Razzaque & Kamran Ahmed, 2018. "Real earnings management and financial statement fraud: evidence from Malaysia," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 26(4), pages 508-526, October.
    • Handle: RePEc:eme:ijaimp:ijaim-03-2017-0039
    DOI: 10.1108/IJAIM-03-2017-0039
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    Cited by:

    1. Mubashar Tanveer & Mohsin Altaf & Zahid Ali Akbar & Uzma Nisar, 2022. "Influence of Advertising Intensity on Real Earnings Management: Evidence from Four Sectors of Pakistan," Journal of Economic Impact, Science Impact Publishers, vol. 4(1), pages 158-164.

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